Nepal: Energy Sector Capacity Building

Given Nepal's vast hydropower potential, the country's energy sector is poised to make a strong contribution to the country's economic development. But years of underinvestment in electricity generation have led to supply shortages. Investments have not kept up with growth in demand, which increases by 9%-10% annually. The Nepal Electricity Authority has performed poorly and incurred heavy financial losses. A poor regulatory environment has added to the sector's problems. Nepal's electricity supply system is among the least reliable in South Asia, characterized by frequent unscheduled interruptions and long periods of scheduled supply outages. While 56% of households have electricity, the electrification process has stalled, mainly because of low generation capacity. A sector that has the potential to contribute significant foreign exchange earnings through power exports instead must import energy at great cost from neighboring India.

Given Nepal's vast hydropower potential, the country's energy sector is poised to make a strong contribution to the country's economic development. But years of underinvestment in electricity generation have led to supply shortages. Investments have not kept up with growth in demand, which increases by 9%-10% annually. The Nepal Electricity Authority has performed poorly and incurred heavy financial losses. A poor regulatory environment has added to the sector's problems. Nepal's electricity supply system is among the least reliable in South Asia, characterized by frequent unscheduled interruptions and long periods of scheduled supply outages. While 56% of households have electricity, the electrification process has stalled, mainly because of low generation capacity. A sector that has the potential to contribute significant foreign exchange earnings through power exports instead must import energy at great cost from neighboring India.

Project Rationale and Linkage to Country/Regional Strategy

ADB's power sector strategy in Nepal is aligned with Nepal's Three Year Interim Plan (2008-2010) and is based on four pillars of ADB's Country Partnership Strategy (CPS) for 2010-2012: (i) Broad based and inclusive high economic growth; (ii) Inclusive Social Development; (iii) Governance and State Strengthening; and (iv) Climate Change and Environment Sustainability. ADB's assistance for the power sector in Nepal will have six main areas of interventions: i) improving access to electricity; ii) increased energy efficiency; (iii) clean power development; iv) regional cooperation; v) strengthening sector governance; vi) promoting private sector participation.

The activities within the proposed CDTA will directly focus on three areas of ADB strategy; (i) clean power development; (ii) strengthening sector governance iii) promoting private sector participation. It also will have an impact on the remaining areas.

Impact

Rapid development of hydropower generation in Nepal.

Project Outcome

Description of Outcome

Enhanced capability of the MOE, the ETFC, and the DOED in hydropower policy making, regulation, planning, and investment promotion

Progress Toward Outcome

Done. Capacity development activities for the MOE, the ETFC, and the DOED in hydropower policy making, regulation, planning, and investment promotion were completed.

Implementation Progress

Description of Project Outputs

1. Updated plans for hydropower development

2. Evaluation and monitoring tools to assess hydropower projects

3. Training and other capacity building support to the MOE, the ETFC, and the DOED on energy policy making and regulation, and hydropower planning, development, project evaluation, and monitoring

Status of Implementation Progress (Outputs, Activities, and Issues)

An inception mission from the Asian Development Bank (ADB) visited Nepal from 2 - 5 June 2011 and met with the officials of the Ministry of Energy (MOE) and Department of Electricity Development (DOED). The MOE and DOED have finalised the following 7 (seven) key areas for capacity building. Based on the available resource and time, the consultants will prepare the work plans that are possible and deliverable.

1) Guidelines and procedures for financial and economic analysis of IPP bids, including easy-to-use financial models.

2) Guidelines and procedures for technical evaluation of IPP bids received in response to RFPs.

3) Guidelines and procedures for monitoring and evaluation of bids and projects under development.

4) Guidelines and procedures for free power and royalties, and licensing, etc. and model project development agreements.

5) Guidelines and procedures for preparation of RFP packages to solicit IPP bids.

6) Standardized PPA for hydropower projects of varying size, for domestic and export-power projects, and other model contracts including concession agreements, project development agreement, etc, and

7) Guidelines and procedures for PPA, project development agreements and concession negotiations.

Geographical Location

Nepal

Summary of Environmental and Social Aspects

Environmental Aspects

Involuntary Resettlement

Indigenous Peoples

Stakeholder Communication, Participation, and Consultation

During Project Design

During Project Implementation

Business Opportunities

Consulting Services

The TA required the services of 4 international consultants for a total period of 12 person-months. The international consulting team included a (i) power sector capacity development advisor, 1 person-month; (ii) capacity development coordinator, 2 person-months; (iii) hydropower planning specialist, 5 person-months; and (iv) project evaluation and monitoring specialist, 4 person-months. The international capacity development advisor acted as the team leader and facilitated communication with ADB, EA and IA. In particular, the team leader was responsible for delivering the expected outputs and progress reports to the ADB.

Procurement

The following equipment were purchased for capacity development: 10 laptops, 1 heavy duty printer cum fax machine and 1 heavy duty photocopier machine. They were utilized during the capacity development trainings. These equipments were already handed over to the Department of Electricity Development.

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